Q&A Hero

Q: Environmental sustainability involves A. a corporate commitment to go beyond society's expectations for ethical strategies and business behavior to address the unmet noneconomic needs of society. B. striking a balance between (1) the economic responsibility to reward shareholders with profits, (2) the legal responsibility to follow the laws in countries where it operates, (3) the ethical responsibility to abide by society's moral norms, and (4) the discretionary philanthropic responsibility to contribute to the noneconomic needs of society. C. deliberate actions to protect the environment, provide for the longevity of resources, maintain ecological support systems for future generations, and guard against the ultimate endangerment of the planet. D. developing strategies that yield a sustainable competitive advantage that will allow the company to be sustainable for the long term. E. All of these choices are correct.

Q: Good corporate citizens A. go beyond meeting society's expectations for ethical strategies and business behavior by fostering social benefit and balancing the interests of all. B. are active participants in the political process. C. identify up-and-coming managers who have a future in local- or state-level politics. D. create a democratic workplace in which the voices of lower-level employees are heard through representation on the board of directors. E. All of these choices are correct.

Q: The essence of socially responsible business behavior is A. encouraging company personnel to run for political offices. B. balancing strategic actions to benefit shareholders against the duty to be a good corporate citizen. C. undertaking actions to balance the interests of all company stakeholders rather than just exclusively look out for the interests of shareholders. D. making sizable contributions to political action committees representing the interests of the industry. E. pursuing actions to keep prices low enough that the company's profits will not be viewed by the general public as obscenely high or exorbitant.

Q: Which of the following should be on a company's menu of actions to consider in crafting a strategy of social responsibility? A. actions to ensure that the company operates in an honorable and ethical manner B. actions to ensure diversity in the workforce C. actions (over and above what is required) to protect or enhance the environment, including both those environmental problems stemming from the company's own business activities and those problems outside the company's immediate sphere of operations D. actions to create a work environment that enhances the quality of life for employees and makes the company a great place to work E. all of these choices are correct.

Q: Which of the following is not generally on a company's menu of actions to consider in crafting a strategy of social responsibility? A. actions to ensure that the company operates in an honorable and ethical manner B. actions to build a workforce that is diverse with respect to gender, race, national origin, and perhaps other personal characteristics C. actions to look out exclusively for the best interests of shareholders D. actions to protect or enhance the environment (apart from what is required by governmental authorities) E. actions to create a work environment that enhances the quality of life for employees

Q: Corporate social responsibility (CSR) as it applies to businesses refers toA. a company's duty to put the public interest ahead of shareholder interests.B. societal expectations that all company stakeholders will be treated equally and fairly.C. a company's duty to establish socially acceptable core values and to have a strictly enforced code of ethical conduct.D. the responsibility that top management has for ensuring that the company's actions and decisions are in the best interest of society at large.E. a company's duty to operate in an honorable manner, provide good working conditions for employees, encourage workforce diversity, be a good steward of the environment, and actively work to better the quality of life in the local communities where it operates and in society at large.

Q: Integrative social contracts theory maintains that A. there is no such thing as "moral free space": all ethical standards are determined by societal norms, and individuals have an implied social contract to live up to these standards. B. few nations or cultures have a common moral agreement about what is ethically right and wrong. C. there should be no absolute limits put on what actions and behaviors fall inside the boundaries of what is ethically or morally right and which actions and behaviors fall outside. D. "first-order" universal ethical norms always take precedence over "second-order" local ethical norms. E. each country, culture, and society has commonly held views about what constitutes ethically appropriate actions/behaviors; these common standards of what is ethical and what is not combine to form a "social contract" that all individuals in that country, culture, and society are obligated to observe.

Q: According to integrative social contracts theory, the ethical standards a company should try to uphold A. are governed by the school of ethical universalism. B. are governed both by (1) a limited number of universal ethical principles that are widely recognized as putting legitimate ethical boundaries on actions and behavior in all situations and (2) the circumstances of local cultures, traditions, and shared values that further prescribe what constitutes ethically permissible behavior and what does notbut universal norms always take precedence over local ethical norms. C. are governed by each country's Code of Required Ethical Conduct, which sets forth that each individual, group, business, and organization has a "social contract" to observe the ethical and moral standards that the country has adopted. D. should be determined by the company's board of directors. E. should never be absolute but rather always provide some wiggle room according to the circumstances of the situation.

Q: The contention that ethical standards should be governed both by (1) a limited number of universal ethical principles that are widely recognized as putting legitimate ethical boundaries on actions and behavior in all situations and (2) the circumstances of local cultures, traditions, and shared values that further prescribe what constitutes ethically permissible behavior and what does not are the basic principles of A. the school of ethical relativism. B. the school of ethical universalism. C. integrative social contracts theory. D. the global corruption standards published by Transparency International. E. the Global Code of Ethical and Social Morality developed by the United Nations.

Q: A company that adopts the principle of ethical relativism in providing guidance to company personnel A. bases its standards of what is ethical and what is unethical on the Global Code of Ethical Conduct first developed in 1935 and since subscribed to by the governments of 180 countries. B. places itself in a perilous position if it is required to defend these activities to its stakeholders in countries with higher ethical expectations or standards because it has no ethical standards or principles of its own. C. has no fair way to judge the ethical correctness of the conduct of company personnel. D. has a one-size-fits-all set of ethical standards. E. allows each company employee to determine what set of ethical standards to observe.

Q: A belief in ethical relativism leads to the conclusion that A. because ethical standards are subjective, it is perfectly appropriate for each company to define and implement its own ethical principles of right and wrong as concerns the use of underage labor and the payment of bribes and kickbacks. B. ethical standards are determined objectively (rather than subjectively). C. whether the payment of bribes and kickbacks should be deemed ethical or unethical depends on the moral standards, values, beliefs, convictions, and business norms that prevail in particular cultures, societies, countries, or circumstances. D. ethical standards are objective and universal; thus, whether the use of underage labor and the payment of bribes and kickbacks should be deemed ethical or unethical definitely is not dependent on the moral standards, values, beliefs, convictions, and business norms that prevail in particular cultures, societies, countries, or circumstances. E. standards of right and wrong are governed by what is legal in a given country; thus, whether the use of underage labor and the payment of bribes and kickbacks is ethical or unethical is governed by local law.

Q: The school of ethical relativism holds that A. what constitutes ethical or unethical conduct varies according to the religious convictions of each society or each culture within a country. B. when there are country or cross-cultural differences in what is considered ethical or unethical in business situations, it is appropriate for local moral standards to take precedence over what the ethical standards may be elsewhere. C. concepts of right and wrong are always governed by business norms in each country, culture, or society. D. concepts of right and wrong are always a function of each individual's own set of values, beliefs, and ethical convictions. E. concepts of right and wrong as they apply to business behavior are always varying shades of gray, never absolute (i.e., black or white).

Q: The contention that because different societies and cultures have divergent values and standards of right and wrong, it is appropriate to judge behavior as ethical or unethical in the light of local customs and social mores rather than according to a single set of ethical standards A. defines what is meant by "ethical relativism." B. defines what is meant by "ethical universalism." C. is the foundation of integrated social contracts theory. D. is the basis for the theories of both "ethical relativism" and "ethical universalism." E. is the foundation for all three theories above.

Q: According to the school of ethical universalism, A. universal ethical principles or norms put limits on what actions and behaviors fall inside the boundaries of what is right and which ones fall outside; such universal norms include honesty, trustworthiness, respecting the rights of others, practicing the Golden Rule, and avoiding unnecessary harm to workers or to the users of the company's product or service. B. all societies and countries are obligated to apply universally defined ethical principles of right and wrong as set forth in the Global Code of Ethical and Social Morality (which is subscribed to by 150 nations of the world). C. all societies and countries apply essentially the very same set of universally defined ethical principles of right and wrong in judging the ethical correctness of business behavior. D. it is only fair that the standards of what's ethical and what's unethical be applied universally to all businesses in all countries irrespective of local business traditions and local business norms. E. the standards of what constitutes ethical and unethical behavior in business situations are partly universal, but in the main are governed by local business norms.

Q: According to the school of ethical universalism,A. concepts of what constitutes ethical behavior and unethical behavior are dictated by subjectively provable moral principles but not by objectively provable moral principles.B. concepts of right and wrong are universal within countries or societies but not across countries or cultures.C. concepts of what is ethical and what is unethical are universal and absolute, leaving no room for deviation from country to country or circumstance to circumstance.D. to the extent there is common moral agreement about right and wrong actions and behaviors across multiple cultures and countries, there exists a set of universal ethical standards to which all societies, all companies, and all individuals can be held accountable.E. all societies and countries are obligated to apply universally defined ethical principles of right and wrong as set forth in the Global Code of Ethical Behavior adopted by 150 nations of the world.

Q: The contentions that (1) many of the same standards of what's ethical and what's unethical resonate with peoples of most cultures, societies, and religions, and (2) to the extent there is common moral agreement about right and wrong actions, there exists a set of common ethical standards to which organizations and individuals can be held accountable are defining beliefs of A. the school of ethical relativism. B. the school of ethical universalism. C. integrated social contracts theory. D. both the school of ethical relativism and the school of ethical universalism. E. the school of ethical relativism, the school of ethical universalism, and integrated social contracts theory.

Q: Notions of right and wrong, fair and unfair, moral and immoral, ethical and unethical A. vary enormously from religion to religion and country to country across the world. B. are present in all societies, organizations, and individuals. C. ultimately depend on the circumstancesnothing is really black or white when it comes to ethical standards. D. are governed mainly by the thinking and writings of religious clerics at the School of Morally Correct Thinking and Behavior in Geneva, Switzerland. E. ultimately depend on a person's own values and beliefs.

Q: The costs incurred when ethical wrongdoing occurs fall into three specific categories and include all except A. intangible costs such as legal and investigative costs incurred by the company. B. internal administrative costs associated with ensuring future compliance. C. intangible costs such as customer defections. D. less visible costs such as costs of complying with often harsher government regulation. E. visible costs to shareholders such as lower stock price.

Q: A company's unethical behavior may result in the following except A. buyers will shun the company. B. the company will have difficulty recruiting and retaining talented employees. C. the company risks damage to shareholders in the form of lost revenues, higher costs, and lower profits, and the company's reputation will suffer. D. the company will have to deal with the Sarbanes-Oxley Act of 2002, which requires the company remove the tarnished employees. E. All of these choices are correct.

Q: The consequences of pursuing a strategy that has unethical or shady components include A. lower stock prices. B. customer defections and loss of reputation. C. incurring potentially large legal and investigative costs, government fines, and civil penalties. D. the costs of providing remedial education and ethics training to company personnel. E. All of these choices are correct.

Q: A company's strategy needs to be ethical because A. of the dangers that top management will be embarrassed if the company's unethical behavior is publicly exposed. B. a strategy that is unethical not only damages the company's reputation, but it can also have costly consequences. C. everyone is an ethics watchdog, and somebody is sure to blow the whistle on the company's unethical behavior. D. of the risks of getting caught and prosecuted by governmental authorities if an unethical strategy is used. E. unethical strategies are inconsistent with or else weaken the corporate culture.

Q: Which one of the following is not one of the major drivers of unethical managerial behavior? A. intense competitive pressures B. overzealous pursuit of personal gain, wealth, and other selfish interests C. a company culture that puts the profitability and good business performance ahead of ethical behavior D. heavy pressures on company managers to meet or beat earnings targets E. the attitude among management that "the business of business is business, not ethics"

Q: Unethical business behavior tends to be driven by such factors as A. a managerial mind-set that "the business of business is business, not ethics." B. overzealous pursuit of personal gain, wealth, and other selfish interests. C. a company culture that puts the profitability and good business performance ahead of ethical behavior. D. heavy pressures on company managers to meet or beat earnings targets. E. All of these choices are correct.

Q: The major drivers of unethical business behavior include A. pervasive managerial immorality and a general lack of scruples on the part of top executives regarding how customers and suppliers should be treated. B. corporate cultures that put the bottom line ahead of ethics, heavy pressures on company managers to meet or beat performance targets, and overzealous or obsessive pursuit of wealth accumulation, power, status, and other selfish interests. C. widespread managerial belief in the ethical relativism school of thinking. D. an aversion to ethical correctness on the part of top executives and a belief that unethical behavior is unimportant and probably won't be discovered. E. intense competitive pressures.

Q: As they apply to business conduct and business decisions, ethical principles A. deal chiefly with a company's standards about what is right and wrong insofar as the conduct of its business is concerned and about what behaviors are expected of company personnel. B. deal chiefly with the behaviors that a company's board of directors expects of all company personnel in both their conduct on the job and their conduct off the job. C. involve the rules a company's top management and board of directors make about "what is right" and "what is wrong." D. are not materially different from ethical principles in general. E. are generally less stringent than the ethical principles for society at large because it is well understood that businesses should not be expected to operate any differently from what the law requires of them.

Q: The results of strategies that cannot pass the test of moral scrutiny often are manifested in A. sharp drops in stock prices and lower dividends. B. devastating public relations hits. C. sizable fines. D. criminal indictment and convictions of company executives. E. All of these choices are correct.

Q: Ethical principles in businessA. deal chiefly with the actions and behaviors required to operate companies in a socially responsible manner.B. deal chiefly with the rules each company's top management and board of directors make about "what is right" and "what is wrong."C. are not materially different from ethical principles in general.D. are generally less stringent than the ethical principles for society at large.E. are generally more stringent than the ethical principles for society at large.

Q: Business ethics concerns A. developing a consensus among companies worldwide as to what ethical principles that businesses should be expected to observe in the course of conducting their operations. B. what ethical behaviors should be expected of company personnel in the course of doing their jobs. C. the application of ethical principles and standards to business activities, behavior, and decisions. D. developing a special set of ethical standards for businesses to observe in conducting their affairs. E. picking and choosing among the normative ethical standards of society in order to arrive at a set of ethical standards that apply directly to operating a business.

Q: The businesses in a diversified company's lineup exhibit good resource fit when A. the resource requirements of each of its businesses exactly match the resources the company has available. B. its individual businesses add to a company's resource strengths and when it has the resources to adequately support the requirements of its businesses as a group without spreading itself too thin. C. each business unit generates just enough cash flow annually to fund its own capital requirements and thus does not require cash infusions from the corporate parent. D. each business unit produces sufficient cash flows over and above what is needed to build and maintain the business, thereby providing the parent company with enough cash to pay shareholders a generous and steadily increasing dividend. E. there are enough cash cow businesses to support the capital requirements of the cash hog businesses.

Q: A diversified company's business units exhibit good resource fit when A. each business is a cash cow. B. a company has the resources to adequately support the requirements of its businesses as a group without spreading itself too thin and when individual businesses add to a company's overall resource strengths. C. each business is sufficiently profitable to generate an attractive return on invested capital. D. each business unit produces large internal cash flows over and above what is needed to build and maintain the business. E. the resource requirements of each business exactly match the resources the company has available.

Q: Checking a diversified firm's business portfolio for the competitive advantage potential of cross-business strategic fits entails consideration of A. whether the parent company's competitive advantages are being deployed to maximum advantage in each of its business units. B. whether the competitive strategies employed in each business act to reinforce the competitive power of the strategies employed in the company's other businesses. C. whether the competitive strategies in each business possess good strategic fit with the parent company's corporate strategy. D. the extent to which there are competitively valuable relationships between the value chains of sister business units and what opportunities they present to reduce costs, share use of a potent brand name, or transfer skills or technology or intellectual capital from one business to another. E. how compatible the competitive strategies of the various sister businesses are and whether these strategies are properly aimed at achieving the same kind of competitive advantage.

Q: In a diversified company, the competitive advantage potential of cross-business strategic fit is greater when A. the business lineup includes a number of cash cows. B. valuable opportunities exist to transfer skills, technology, or intellectual capital from one business to another, combine the performance of related activities, or share the use of a well-respected brand name across multiple products or service categories. C. the strategy maps of the various business units converge. D. businesses included in the corporate portfolio compete in fast-growing industries. E. competition is less intense and driving forces are relatively weak.

Q: In analyzing the Nine-Cell Industry Attractiveness-Competitive Strength Matrix, those businesses occupying the three cells in the lower right corner of the matrix A. are typically weak performers and have the lowest claim on corporate resources. B. typically are prime candidates for divesture. C. are destined for squeezing out the maximum cash flows. D. typically have dimmer profit outlooks than those in the middle with medium resource priority. E. All of these choices are correct.

Q: The most important strategy-making guidance that comes from drawing a Nine-Cell Industry Attractiveness-Competitive Strength Matrix is A. which businesses in the portfolio have the most potential for strategic fit and resource fit. B. why cash cow businesses are more valuable than cash hog businesses. C. that corporate resources should be concentrated on those businesses enjoying both a higher degree of industry attractiveness and competitive strength and that businesses having low competitive strength in relatively unattractive industries should be looked at for possible divestiture. D. which businesses have the biggest competitive advantages and which ones confront serious competitive disadvantages. E. which businesses are in industries with profitable value chains and which are in industries with money-losing value chains.

Q: The Nine-Cell Industry Attractiveness-Competitive Strength Matrix A. is useful for helping decide which businesses should have high, average, and low priorities in allocating corporate resources. B. indicates which businesses are cash hogs and which are cash cows. C. pinpoints what strategies are most appropriate for businesses positioned in the three top cells of the matrix but is less clear about the best strategies for businesses positioned in the bottom six cells. D. identifies which sister businesses have the greatest strategic fit. E. indicates the relative size of the businesses.

Q: The basic purpose of calculating competitive strength scores for each of a diversified company's business units is to A. rank the business unit from best to worst in terms of potential for cost reduction and profit margin improvement. B. provide a quantitative measure of the overall market strength and competitive standing for each business unit. C. determine which business unit has the greatest number of resource strengths, competencies, and competitive capabilities, and which one has the least. D. determine which one has the biggest market share and is growing the fastest. E. rank each business unit's strategy from best to worst.

Q: The value of determining the relative competitive strength of each business a company has diversified into is to A. have a quantitative basis for identifying which businesses have large/small competitive advantages or competitive disadvantages vis--vis the rivals in their respective industries. B. have a quantitative basis for rating them from strongest to weakest in terms of contributing to the corporate parent's revenue growth. C. compare resource strengths and weaknesses, business by business. D. have a quantitative basis for rating them from strongest to weakest in contending for market leadership in their respective industries. E. have a quantitative basis for rating them from strongest to weakest in terms of contributing to the corporate parent's profitability.

Q: Assessments of how a diversified company's subsidiaries compare in competitive strength should be based on such factors as A. vulnerability to seasonal and cyclical downturns, vulnerability to driving forces, and vulnerability to fluctuating interest rates and exchange rates. B. relative market share, ability to match or beat rivals on key product attributes, brand image and reputation, costs relative to competitors, and ability to benefit from strategic fits with sister businesses. C. the appeal of its strategy, relative number of competitive capabilities, the number of products in each businesses product line, which businesses have the highest/lowest market shares, and which businesses earn the highest/lowest profits before taxes. D. the ability to hurdle barriers to entry, value chain attractiveness, and business risk. E. cost reduction potential, customer satisfaction potential, and comparisons of annual cash flows from operations.

Q: When calculating industry attractiveness scores, to produce a valid response it is necessary to A. ensure the appropriate weights are assigned to each measure and that the preparer has sufficient knowledge to rate the industry on each attractiveness measure. B. ensure the weights are assigned evenly so as not to bias the attractiveness scores. C. ensure at least three companies within the industry are clearly well-understood to ensure validated scores. D. be prepared to make an educated guess if the available information is skimpy. E. All of these choices are correct.

Q: When industry attractiveness ratings are calculated for each of the industries a multibusiness company has diversified into, the results help indicate A. which industries appear to be the most and least attractive from the standpoint of the company's long-term performance. B. which industries have attractive key success factors and which have unattractive key success factors. C. which industries have the biggest economies of scale and which have the greatest economies of scope and the overall potential for cost reduction in the industries as a group. D. which industries are most attractive from the standpoint of long-term growth and the growth prospects of all the industries as a group. E. which industries are most attractive from the standpoint of industry driving forces and competitive forces.

Q: Which of the following is not generally something that ought to be considered in evaluating the attractiveness of a diversified company's business makeup? A. market size and projected growth rate, industry profitability, and the intensity of competition B. industry uncertainty and business risk C. frequency with which strategic alliances and collaborative partnerships are used in each industry, the extent to which firms in the industry utilize outsourcing, and whether the industries a company has diversified into have common key success factors D. seasonal and cyclical factors, resource requirements, and whether an industry has significant social, political, regulatory, and environmental problems E. presence of cross-industry strategic fits

Q: As a rule, all the industries represented in a diversified company's business portfolio should be judged on such attractiveness factors as A. market size and projected growth rate. B. emerging opportunities and threats, the intensity of competition, and the degree of industry uncertainty and business risk. C. resource requirements and the presence of cross-industry strategic fits. D. seasonal and cyclical factors, industry profitability, and whether an industry has significant social, political, regulatory, and environmental problems. E. All of these choices are correct.

Q: A comprehensive evaluation of the group of businesses a company has diversified into involvesA. evaluating the attractiveness of industries the company has diversified into and the competitive strength of each of its business units.B. evaluating the strategic fits and resource fits among the various sister businesses.C. ranking the performance prospects of the businesses from best to worst and determining what the corporate parent's priorities should be in allocating resources to its various businesses.D. using the results of the prior analytical steps as a basis for crafting new strategic moves to improve the company's overall performance.E. All of these choices are correct.

Q: Which of the following is not a major consideration in evaluating the pluses and minuses of a diversified company's strategy? A. checking whether the company's resources fit the requirements of its present business lineup B. scrutinizing each industry/business to determine where driving forces are strongest/weakest and how many profitable strategic groups the company has diversified into C. ranking the performance prospects of the various businesses from best to worst and determining what the corporate parent's priorities should be in allocating resources to its different businesses D. evaluating the extent of cross-business strategic fits E. assessing the competitive strength of each business the company has diversified into

Q: The procedure for evaluating the pluses and minuses of a diversified company's strategy includes A. assessing the attractiveness of the industries the company has diversified into. B. assessing the competitive strength of each business the company has diversified into. C. ranking the performance prospects of the various businesses from best to worst and determining the priorities for resource allocation. D. evaluating the extent of cross-business strategic fits and checking whether the firm's resources fit the needs of the various businesses the company has diversified into. E. All of these choices are correct.

Q: Which of the following is a diversified business with one major "core" business and a collection of small related or unrelated businesses? A. broadly diversified enterprise B. narrowly diversified enterprise C. multibusiness enterprise D. high-compensation/low-risk enterprise E. dominant business enterprise

Q: What rationales for unrelated diversification are not likely to increase shareholder value? A. reduce risk by spreading the company's investments over a set of truly diverse industries B. enable a company to achieve rapid or continuous growth C. stabilize earnings; that is, market downtrends in some of the company's businesses will be partially offset by cyclical upswings in its other businesses D. provide benefits to managers such as high compensation and reduction in employment risk E. all of these choices are correct.

Q: The one factor that company executives need not worry about when their company is managing many diverse, unrelated firms is A. staying abreast of what's happening in each industry and subsidiary. B. picking business-unit heads who have the requisite combination of managerial skills and know-how to motivate people. C. understanding the true value of strategic investment proposals by business-unit managers. D. knowing what to do if a business unit stumbles. E. "managing by the numbers"that is, keeping a close track on the financial and operating results of each subsidiary.

Q: The two biggest drawbacks or disadvantages of unrelated diversification are A. underemphasizing the importance of resource fit and the strong likelihood of diversifying into businesses that top management does not know all that much about. B. insufficient cash flows to finance so many different lines of business and a lack of uniformity among the strategies of the businesses the company has diversified into. C. volatile sales and profits and making the mistake of diversifying into too many cash cow businesses. D. the difficulties of competently managing a set of fundamentally different businesses and having a very limited competitive advantage potential that cross-business strategic fit provides. E. overinvesting in the achievement of economies of scope and the difficulties of achieving a good mix of cash cow and cash hog businesses.

Q: The two biggest drawbacks or disadvantages of unrelated diversification are A. the difficulties of passing the cost-of-entry test and the ease with which top managers can make the mistake of diversifying into businesses where competition is too intense. B. the difficulties of capturing financial fit and having insufficient financial resources to spread business risk across many different lines of business. C. demanding managerial requirements and the limited competitive advantage potential that cross-business strategic fit provides. D. ending up with too many cash hog businesses and too much diversity among the competitive strategies of the businesses the company has diversified into. E. the difficulties of achieving economies of scope and conflicts/incompatibility among the competitive strategies of the company's different businesses.

Q: The success of unrelated diversification is contingent upon management's ability to A. acquire new businesses that utilize much the same technology as existing businesses. B. divest businesses whose competitive strategies do not match the overall competitive strategy of the corporation. C. acquire new businesses having attractive distribution-related and customer-related strategic fits with existing businesses. D. identify bargain-priced companies with big upside potential and then turn around their operations quickly with the aid of the parent company's financial resources and managerial know-how. E. identify potential new acquisition candidates that are cash cows (as opposed to cash hogs).

Q: Which of the following is not one of the suggested appeals of an unrelated diversification strategy? A. ability to spread business risk over truly diverse businesses (as compared to related diversification, which is limited to spreading risk only among businesses with strategic fit) B. ability to employ the company's financial resources to maximum advantage by investing in whatever industries/businesses offer the best profit prospects C. ability to capture cross-business strategic fit with which to capture added competitive advantage and few managerial demands D. potential for achieving somewhat more stable corporate sales and profits over the course of economic upswings and downswings (to the extent the company diversifies into businesses whose ups and downs tend to occur at different times) E. potential to grow shareholder value by investing in bargain-priced companies with big upside profit potential

Q: One of the suggested advantages of an unrelated diversification strategy is that it A. expands a firm's competitive advantage opportunities to include a wider array of businesses. B. spreads the stockholders' risks across a group of truly diverse businesses. C. increases strategic fit opportunities and the potential for a 1 + 1 = 3 outcome on the bottom line. D. results in having more cash cow businesses than cash hog businesses. E. facilitates capturing the financial fits among sister businesses (as compared to a strategy of related diversification).

Q: With an unrelated diversification strategy, the types of companies that make particularly attractive acquisition targets are A. financially distressed companies with good turnaround potential, undervalued companies that can be acquired at a bargain price, and companies that have bright growth prospects but are short on investment capital. B. companies offering the biggest potential to reduce labor costs. C. cash cow businesses with excellent financial fit. D. companies that are market leaders in their respective industries. E. companies that are employing the same basic type of competitive strategy as the parent corporation's existing businesses.

Q: The basic premise of unrelated diversification is that A. the least risky way to diversify is to seek out businesses that are leaders in their respective industry. B. the best companies to acquire are those that offer the greatest economies of scope rather than the greatest economies of scale. C. the best way to build shareholder value is to acquire businesses with strong cross-business financial fit. D. any company that can be acquired on good financial terms and has satisfactory growth and earnings potential represents a good acquisition and a good business opportunity. E. the task of building shareholder value is better served by seeking to stabilize earnings across the entire business cycle than by seeking to capture cross-business strategic fits.

Q: Different businesses are said to be "unrelated" when A. they are in different industries. B. the products of the different businesses are not bought by the same types of buyers or sold in the same types of retail stores. C. the products of the different businesses satisfy different buyer needs. D. the businesses have different supply chains and different types of suppliers. E. there is an absence of competitively valuable strategic fits between their respective value chains.

Q: A strategy of diversifying into unrelated businesses A. is aimed at achieving good financial fit (whereas related diversification aims at good strategic fit). B. is the best way for a company to pass the attractiveness test in choosing which types of businesses/industries to enter. C. discounts the importance of strategic fit and instead focuses on building and managing a group of businesses in attractive industries that can acquired on financial terms that allow for acceptable returns on investment. D. concentrates on diversifying into businesses where a company can leverage use of a well-known brand name in ways that create added value for shareholders. E. generally offers more competitive advantage potential than related diversification.

Q: The essential requirement for different businesses to be "related" is that A. their value chains possess competitively valuable cross-business fit relationships. B. the products of the different businesses are bought by much the same types of buyers. C. the products of the different businesses are sold in the same types of retail stores. D. the businesses have several key suppliers in common. E. the production methods that they employ both entail economies of scale.

Q: When evaluating strategic fit benefits that related diversification can deliver, one must keep in consideration a number of factors. Which one is not relevant? A. Shareholder value stemming from a diversified business cannot be replicated by simply owning a diversified portfolio of stocks. B. The capture of cross-business strategic fits benefits is possible only through related diversification. C. Cross-business strategic fit benefits are not automatically realized; the benefits materialize only after management has successfully pursued internal actions to capture them. D. Shareholder value is created when the diversified company's profitability exceeds expectations. E. Related diversification is the process of holding the stock of many businesses in a portfolio.

Q: A diversified company that leverages the strategic fits of its related businesses into competitive advantageA. has a distinctive competence in its related businesses.B. has a clear path to achieving 1 + 1 = 3 synergy gains in shareholder value.C. has a clear path to global market leadership in the industries where it has related businesses.D. passes the value chain test and the profit expectations test for building shareholder value.E. achieves economies of scale and passes the reduced-costs test for crafting a diversification strategy capable of creating added shareholder value.

Q: What makes related diversification an attractive strategy is the A. ability to broaden the company's product line. B. opportunity to convert the competitive advantage potential into 1 + 1 = 3 gains in shareholder value. C. potential for improving the stability of the company's financial performance. D. ability to serve a broader spectrum of buyer needs. E. added capability it provides in overcoming the barriers to entering foreign markets.

Q: Economies of scope A. are cost reductions that flow from cost-saving strategic fits along the value chains of related businesses in the business lineup of a multibusiness corporation. B. arise only from strategic fit relationships in the production portions of the value chains of sister businesses. C. are more associated with unrelated diversification than related diversification. D. are present whenever diversification satisfies the attractiveness test and the cost-of-entry test. E. arise mainly from strategic fit relationships in the distribution portions of the value chains of unrelated businesses.

Q: Cross-business strategic fits can be derived fromA. transferring competitively valuable resources, expertise, technological know-how, or other capabilities from one business to another.B. cost sharing between separate businesses whose activities can be combined.C. brand sharing between business units that have common customers or that draw upon common core competencies.D. sharing common administrative and customer service infrastructure.E. All of these choices are correct.

Q: Opportunities for cross-business strategic fit exist A. in R&D and technology activities only. B. in supply chain activities only. C. in sales and marketing activities only. D. in production and distribution activities only. E. anywhere along the respective value chains of related businesses; no one place is best.

Q: One strategic fit-based approach to related diversification would be to A. diversify into new industries that present opportunities to combine value chain activities of two or more businesses to lower costs. B. diversify into those industries where the same kinds of driving forces and competitive forces prevail, thus allowing use of much the same competitive strategy in all of the businesses a company is in. C. acquire rival firms that have broader product lines so as to give the company access to a wider range of buyer groups. D. acquire companies in forward distribution channels (wholesalers and/or retailers). E. expand into foreign markets where the firm currently does no business.

Q: Which of the following is an important appeal of a related diversification strategy? A. It represents an effective way of capturing valuable financial fit benefits. B. It offers opportunities to transfer skills, expertise, technical know-how, or other capabilities from one business to another. C. It offers significant opportunities to strongly differentiate a company's product offerings from those of rivals. D. It is more likely to pass the cost-of-entry test and the capital gains test than unrelated diversification. E. It is typically more profitable than unrelated diversification, which is a major factor in helping related diversification pass the attractiveness test.

Q: Businesses are said to be "related" when A. they have several key suppliers and several key customers in common. B. their value chains have the same number of primary activities. C. their products are both sold through retailers. D. their value chains possess competitively valuable cross-business relationships that present opportunities to transfer skills and capabilities from one business to another, share resources or facilities to reduce costs, share use of a well-known brand name, and/or create mutually useful resource strengths and capabilities. E. many consumers buy the products/services of both businesses.

Q: The essential requirement for different businesses to be "related" is that A. their value chains possess competitively valuable cross-business relationships. B. the products of the different businesses are bought by much the same types of buyers. C. the products of the different businesses are sold in the same types of retail stores. D. the businesses have several key suppliers in common. E. the production methods that they employ both entail economies of scale.

Q: A joint venture is an attractive way for a company to enter a new industry when A. the pool of attractive acquisition candidates in the target industry is relatively small. B. the firm needs better access to economies of scope in order to be cost-competitive. C. the industry is growing slowly and adding too much capacity too soon could create oversupply conditions. D. the firm has no prior experience with diversification and the industry is on the verge of explosive growth. E. the opportunity is too risky or complex for the company to pursue alone or when the company lacks some important resources or competencies and needs a partner to supply them.

Q: A joint venture is an attractive way for a company to enter a new industry when A. the firm is missing some essential skills or capabilities or resources and needs a partner to supply the missing expertise and competencies or fill the resource gaps. B. the firm needs access to economies of scope and good financial fits in order to be cost-competitive. C. it is uneconomical for the firm to achieve economies of scope on its own initiative. D. the firm has no prior experience with diversification. E. the firm has not built up a hoard of cash with which to finance a diversification effort.

Q: Diversifying into a new industry by forming a new internal subsidiary to enter and compete in the target industry is attractive when A. all of the potential acquisition candidates are losing money. B. it is impractical to outsource most of the value chain activities that have to be performed in the target business/industry. C. there is ample time to launch the new business from the ground up. D. the company has built up a hoard of cash with which to finance a diversification effort. E. none of the companies already in the industry is an attractive strategic alliance partner.

Q: Which one of the following is not a factor that makes it appealing to diversify into a new industry by forming an internal start-up subsidiary to enter and compete in the target industry?A. when internal entry is cheaper than entry via acquisitionB. when a company possesses the skills and resources needed to compete effectively and there is ample time to launch the businessC. when adding new production capacity will not adversely impact the supply/demand balance in the industryD. when the industry is growing rapidly and the target industry is comprised of several relatively large and well-established firmsE. when incumbent firms are likely to be slow or ineffective in combating a new entrant's efforts to crack the market

Q: Acquisition of an existing business is an attractive strategy option for entering a promising new industry because it A. is an effective way to hurdle entry barriers, is usually quicker than trying to launch a new start-up operation, and allows the acquirer to move directly to the task of building a strong position in the target industry. B. is less expensive than launching a new start-up operation, thus passing the cost-of-entry test. C. is a less risky way of passing the attractiveness test. D. is more likely to result in passing the shareholder value test, the profitability test, and the better-off test. E. offers the prospect of gaining an immediate competitive advantage in the new industry and thus helps ensure that the diversification move will pass the competitive advantage test for building shareholder value.

Q: Which of the following statements about corporate diversification is incorrect? A. Creating added value for shareholders via diversification requires building a multibusiness company where the whole is greater than the sum of its parts. B. Diversification moves that satisfy all three diversification tests have the greatest potential to grow shareholder value over the long term. C. The more attractive an industry's prospects are for growth and good long-term profitability, the less expensive it can be to enter. D. Diversification cannot be considered a success unless it results in added shareholder valuevalue that shareholders cannot capture for themselves by spreading their investments across the stocks of companies in different industries. E. Shareholder value is not created by diversification unless it passes the "better off" or "1 + 1 = 3 test."

Q: The better-off test for evaluating whether a particular diversification move is likely to generate added value for shareholders involves assessing whether the diversification move A. will make the company better off because it will produce a greater number of core competencies. B. will make the company better off by improving its balance sheet strength and credit rating. C. will make the company better off by spreading shareholder risks across a greater number of businesses and industries. D. offers potential for the company's existing businesses and new businesses to perform better together under a single corporate umbrella. E. will benefit shareholders due to gains in earnings per share and faster stock price appreciation.

Q: The cost-of-entry test for evaluating whether diversification into a particular industry is likely to build shareholder value involves determining whether A. a newly entered business presents opportunities to cost-efficiently transfer competitively valuable skills or technology from one business to another. B. the cost to enter the target industry will strain the company's credit rating. C. a company's costs to enter the target industry are so high that the potentials for good profitability and return on investment are eroded. D. the cost to enter the target industry will raise or lower the company's total profits. E. the cost a company incurs to enter the target industry will raise or lower production costs.

Q: The attractiveness test for evaluating whether diversification into a particular industry is likely to build shareholder value involves determining whetherA. conditions in the target industry allow for profits and return on investment that is equal to or better than that of the company's present business(es).B. the potential diversification move will boost the company's competitive advantage in its existing business.C. shareholders will view the contemplated diversification move as attractive.D. key success factors in the target industry are attractive.E. there are attractive strategic fits between the value chains of the company's present businesses and the value chain of the new business it is considering entering.

Q: To test whether a particular diversification move has good prospects for creating added shareholder value, corporate strategists should use the A. profit test, the competitive strength test, and the industry attractiveness test. B. better-off test, the competitive advantage test, and the profit expectations test. C. barrier to entry test, the competitive advantage test, and the stock price effect test. D. strategic fit test, the industry attractiveness test, and the dividend effect test. E. the industry attractiveness test, the cost-of-entry test, and the better-off test.

Q: The three tests for judging whether a particular diversification move can create value for shareholders are theA. industry attractiveness test, the profitability test, and the shareholder value test.B. strategic fit test, the competitive advantage test, and the return on investment test.C. resource fit test, the profitability test, and the shareholder value test.D. attractiveness test, the cost-of-entry test, and the better-off test.E. shareholder value test, the cost-of-entry test, and the profitability test.

Q: To create value for shareholders via diversification, a company must A. get into new businesses that are profitable. B. diversify into industries that are growing rapidly. C. spread its business risk across various industries by only acquiring firms that are strong competitors in their respective industries. D. diversify into businesses that can perform better under a single corporate umbrella than they could perform operating as independent, stand-alone businesses. E. diversify into businesses that have either key success factors or value chains that are similar to its present businesses.